Rebates on hot-rolled coil and some cold-rolled coil and galvanized products will be removed starting July 15, the Ministry of Finance said in a statement on Tuesday. Currently, the rebates of hot-rolled coil and cold-rolled coil are 9 percent and 13 percent respectively.

Rebate removal to be hard on steel mills

China had actually boosted support for the steel industry in mid-2009:

This is the first move to reduce tariffs in three years. China raised steel export rebates to 9 percent in June 2009, and the latest cuts were made on July 1, 2007.

"The price for hot-rolled coil is around $600 per ton, if the rebate is removed, the price will go up by $50 per ton, reducing Chinese steel products' competitiveness in the global market," said a sales manager from Hebei-based Ye-Steel.

Chinese steel mills began to cut product prices in June, signaling a market adjustment due to weak downstream demand.

While steel prices within China soared in April to their highest level since last August, they've now come off after the government began to try and cool the property market. The Chinese government has long sought to push consolidation in its steel industry, and to clear out the many small inefficient players, and this is now a continuation of this policy.

Thing is, the implications are a bit tricky to gauge. Added pressure is a good sign from the perspective that the Chinese government is confident enough in the strength of its economy to pull back a steel subsidy, yet should China's steel industry be hit too hard it could be bad news for major commodities which feed steel such as iron ore and coking coal. There's also of course the risk that far more damage is caused to the steel industry than the government intends.